How to Calculate True Job Profit
Most HVAC contractors calculate profit by subtracting parts cost from the job total. That's gross profit — and it's not your real profit. True net profit accounts for four layers of cost that many contractors miss entirely.
The Four Cost Layers
- Parts & Materials — Your wholesale cost for all equipment, refrigerant, and consumables used on the job. Don't use the retail price you charged; use what you actually paid.
- True Labor Cost (with burden) — Your tech's hourly wage multiplied by a burden factor of 1.25–1.40. Burden covers payroll taxes (FICA, FUTA, SUTA), workers' comp, health insurance, and paid time off. A tech paid $28/hr actually costs you $35–$39/hr all-in.
- Overhead Allocation — Every job must carry a share of your fixed costs: rent, vehicles, dispatch software, advertising, admin salaries, insurance, and utilities. A typical HVAC company spends 18–22% of revenue on overhead.
- Warranty & Callback Reserve — A 2–5% reserve for potential callbacks, warranty work, and defective parts. Ignoring this distorts profitability on jobs that generate future unpaid labor.
What's a Good Margin for HVAC Jobs?
Industry benchmarks from ACCA and contractor surveys point to these targets:
Gross Margin Target
50–60%
⚠ The Most Common Pricing Mistake
Confusing markup and margin. A 50% markup on parts does NOT mean 50% margin. Marking up a $200 part by 50% means charging $300 — that's 33% margin, not 50%. Use the Flat-Rate Price Builder to set prices that hit your actual margin target.
Labor Burden: What It Is and How to Calculate It
Labor burden is the total employer cost per dollar of wages. For most HVAC companies it falls between 1.25× and 1.40×. Here's what drives it:
- FICA (employer portion): 7.65% of wages
- FUTA/SUTA (unemployment insurance): 1.5–3%
- Workers' Compensation: 8–18% for HVAC (varies by state)
- Health Insurance: $300–600/mo per employee
- Paid Time Off: 2–3 weeks PTO equals 4–6% of wages
- Tools, Uniforms, Training: 1–3%
Add these up and a tech earning $28/hr typically costs $36–40/hr all-in — use 1.32× as a baseline and adjust based on your actual benefits package.
Overhead: How to Calculate Your Rate
Your overhead rate is total annual fixed costs divided by total annual revenue. Track these expenses monthly: rent/mortgage on shop, vehicle costs (payments, insurance, maintenance), dispatch and CRM software, advertising budget, office staff wages, phone and utilities, accountant and legal fees, and business insurance.
A well-run HVAC company keeps overhead at 18–22% of revenue. If yours is above 30%, profitability is likely squeezed regardless of how well you price jobs.
Frequently Asked Questions
Why does my job "look" profitable but my bank account doesn't agree?
The most common cause is not accounting for labor burden and overhead at the job level. You might see $600 left after parts but when you factor in true labor cost ($36–40/hr), overhead allocation (18–22%), and warranty reserve, that $600 can shrink to $150. The calculator above gives you the real number.
Should I include drive time in labor hours?
Yes — if your techs are on the clock during transit, that time has a cost and should be allocated to the job. Some contractors bill drive time directly; others absorb it into overhead. Either way, include it in your cost calculation so you understand true job economics.
What overhead rate should I use if I don't know mine?
Start with 20% and refine it monthly. Take your last 12 months of fixed costs (everything except direct labor and parts) and divide by your revenue. Most HVAC contractors are surprised to find their overhead is 22–28% when properly calculated.
How often should I run the job profit calculator?
Ideally on every job above $500 at quoting time, and again at closeout to compare estimate vs. actual. Pro subscribers can save both snapshots and track the variance — the best contractors use this data to improve their estimating accuracy over time.